Chancellor Ken Clarke’s avoidance of an overtly populist budget has not won him any votes in the voluntary sector.
A relaxation in the rules governing the transfer of covenanted profits from charities’ trading subsidiaries, giving nine months to make a claim, was welcomed by the sector, but other measures were not:
– no change in payroll giving upper limit of £1,200pa nor in Gift Aid lower limit of £250;
– cut in basic rate income tax costs charities an estimated £13 million annually;
– tightening of rules on zero rating of donated goods subsequently sold, as in charity shops and on equipment purchased for disabled people.
ARTS AND OTHER SPENDING
The spending allocation to the Department of National Heritage showed an “increase over plan”, ie partial restoration of last year’s cut:
– an extra £500,000 for the Arts Pairing Scheme, encouraging private sponsorship, now totalling £5.1m;
– a new £2m challenge fund for improvements to public libraries, requires matching private money;
– extra £3m for the Arts Council and ?2m for English Heritage
– no increase on the £17m budget for voluntary and community activities.
Other spending areas suffered a considerable tightening:
– overseas aid cut by 8.4%;
– further squeeze on local authorities main programmes, likely to feed through to voluntary sector grants;
– relaxation of capital rules on spending for regeneration schemes and transfer of council housing, allowing more scope for partnership;
– cuts in the Housing Corporation’s own spending and that of local authorities.
TRAINING
TEC National Council declared the Budget “broadly supportive” of its activities. Training budgets were cut by 2.3% overall, but with extra money for the work-based Youth Training and Modern Apprenticeship schemes, to help meet the achievement targets for NVQ3. Budget other promises included:
legislation to regularise and extend the current ‘extra statutory concession’ which allows employees tax relief on training paid by the employer but not directly work-related; this is to encourage the new trend towards self-planned development of competencies and covers “Operation Raleigh type activities” offering skills which the “trainee is reasonably likely to need in any reasonably likely job with that employer”; it includes reimbursement of expenses like travel, childcare and distance learning materials;
rules governing Vocational Training Relief to be simplified and extended, under which individuals can get tax relief on some personal training expenditure.
SMALL BUSINESS
A package of modest changes left the prospects of small companies largely unaltered:
reduction in small companies rate of corporation tax to 23%, for profits up to ?300,000; this limit was not unrated for inflation;
relaxation of detailed rules governing Venture Capital Trust and Enterprise Investment Schemes which help unquoted companies raise equity and loan capital; cost the Exchequer ?5 million pa.
GENERAL ITEMS
Among other relevant changes were:
phasing out over four years of profit-related pay schemes, affecting 3.7 million employees in 14,000 schemes, eventually saving ?3.1 billion;
modest extension in ‘green’ taxation with incentives for cleaner diesel and exhaust traps on lorries;
no significant changes to private finance initiative.
Comment
All budgets are a judicious mixture of good news and bad. This one was no exception. The main positive development for community affairs was the change to tax status of training. Until now, a concession avoided the ambiguities of whether employee community involvement with a skills development spin-off is a business expense, a charitable donation or a taxable personal benefit. By clarifying this, the Chancellor has not just removed a disincentive, he has also signalled that this activity is a mainstream part of business, recognised as such by Parliament and the government.
The list of bad news is longer. To achieve his headline cut in personal taxation, the Chancellor has shifted the burden from individuals to companies and from direct to indirect taxation. One consequence is that charities lose out on the tax back on covenants and Gift Aid. The cumulative effect since 1979 of tax cuts and VAT increases is very severe. In fact charities are net contributors to the Exchequer, because of the ?350 million bill for irrecoverable VAT.
The phasing out of profit-related pay was also disappointing. Some companies were undoubtedly just cutting tax bills and those who are really committed to profit-sharing will no doubt carry on. But the whole employee involvement movement has taken a blow and it would have been better to tightened rules, not abolish the schemes. All in all, this year’s budget has not helped, especially when compared to last year’s innovations: the introduction of the private finance initiative, the extension of ‘challenge’ partnership funding, a shift towards ‘green’ taxation with the landfill tax and big rise in the payroll giving upper limit.
All budgets are a judicious mixture of good news and bad. This one was no exception. The main positive development for community affairs was the change to tax status of training. Until now, a concession avoided the ambiguities of whether employee community involvement with a skills development spin-off is a business expense, a charitable donation or a taxable personal benefit. By clarifying this, the Chancellor has not just removed a disincentive, he has also signalled that this activity is a mainstream part of business, recognised as such by Parliament and the government.
The list of bad news is longer. To achieve his headline cut in personal taxation, the Chancellor has shifted the burden from individuals to companies and from direct to indirect taxation. One consequence is that charities lose out on the tax back on covenants and Gift Aid. The cumulative effect since 1979 of tax cuts and VAT increases is very severe. In fact charities are net contributors to the Exchequer, because of the ?350 million bill for irrecoverable VAT.
The phasing out of profit-related pay was also disappointing. Some companies were undoubtedly just cutting tax bills and those who are really committed to profit-sharing will no doubt carry on. But the whole employee involvement movement has taken a blow and it would have been better to tightened rules, not abolish the schemes. All in all, this year’s budget has not helped, especially when compared to last year’s innovations: the introduction of the private finance initiative, the extension of ‘challenge’ partnership funding, a shift towards ‘green’ taxation with the landfill tax and big rise in the payroll giving upper limit.
COMMENTS